Domestic plant productivity and incremental spillovers from foreign direct investment

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Domestic plant productivity and incremental spillovers from foreign direct investment

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Carlo Altomonte (Department of Institutional Analysis and Public Management, Bocconi University, Milan, Italy)
Enrico Pennings (Erasmus University, Tinbergen Institute and ERIM, Rotterdam, the Netherlands)

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Abstract

We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995–2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms' total factor productivity are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and services, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves.

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Article provided by Palgrave Macmillan Journals in its journal Journal of International Business Studies.

Volume (Year): 40 (2009)
Issue (Month): 7 (September)
Pages: 1131-1148
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Handle: RePEc:pal:jintbs:v:40:y:2009:i:7:p:1131-1148

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Paper
- Altomonte, C. & Pennings, H.P.G., 2009. "Domestic Plant Productivity and Incremental Spillovers from Foreign Direct Investment," Research Paper ERS-2009-012-STR Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]

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This page was last updated on 2009-11-21.

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